Lockdown set to cause energy price hikes in 2021

Energy costs are likely to increase as wholesale energy prices rise.

By Matt Maynard · 5th January 2021

During the first lockdown of 2020, consumers were warned of increasing energy bills due to more time spent at home consuming gas and electricity. The start of 2021 could very well see a similar trend, but this time wholesale energy prices could make matters more expensive. 

While people were using more energy at home during the Spring lockdown of 2020, businesses were not, which resulted in an unusually low demand for electricity, making wholesale energy prices fall. 

As the wholesale market still continues to recover from its all-time low slump in 2020, we could we expect our energy bills to increase beyond their usual cost as we see energy consumption return to its usual rate. 

Tom Lyon, Director of Energy here at Energy Helpline, says: 

“Wholesale energy prices, which make around half of energy bills, have continued to increase since the spring as markets recover from the height of the global pandemic."  

“This, in turn, has helped raise the cost of the cheapest fixed tariff by 8% or £63 a year since April - so now is a good time to fix if you’re looking to switch."

“Standard Variable Tariffs are capped by the regulator Ofgem. The cap is reviewed twice a year and although it came down in October, it’s likely that - given rising wholesale costs - it could go up next March. Ofgem has also floated plans to raise the cap to cover bad debts, adding further to the risk of more expensive variable deals in 2021."

"Unfortunately, we expect to see energy debt - already high as a result of increased energy use at home - rising even further among consumers into next year, as higher prices and a worsening economic outlook put additional pressure on household finances."

“One of the biggest developments to affect the industry in 2021 will be the consultation in response to the Government’s recent Energy White Paper. With regard to proposals to roll out so-called opt-in switching, the reality is that millions of consumers are stuck on poor-value Standard Variable Tariffs and so it's only right to look at all ways to help them move to better deals."

“Energy Helpline helped Ofgem with its successful opt-in trials in 2018 and 2019, where we saved over 40,000 customers a total of £11m, and so we are pleased to see these measures being progressed. We look forward to working with Government and the regulator to make sure the proposals are implemented in the right way, so that it helps increase market competition and reduces bills for consumers."

“We are also pleased to see proposals in the White Paper to extend the Warm Homes Discount to help more of the most vulnerable, as well as making the green credentials of renewable tariffs even more transparent to help customers make the most informed decision."

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